The importance of TFNs and avoiding penalty tax

Any trustees of an SMSF that becomes liable for tax because a TFN has not been quoted should seriously reconsider whether an SMSF is right for them. This penalty is only payable when a member has not given their TFN to the super fund. As the member and the trustee are one and the same in an SMSF, something must have gone radically wrong if an SMSF has to pay this penalty tax.

When concessional employer contributions, both SGC and salary sacrifice, are made for a member who has not provided the super fund with their TFN, extra tax is payable on the contribution at 34 per cent plus the 15 per cent contributions tax. As super funds do not have to deduct the higher tax until 30 June each year, this should give members enough time to quote their TFN.

If a person subsequently advises a fund of their TFN and the higher rate has already been paid, the super fund can amend its tax return for the relevant year and increase that person's super account by the amount of tax refunded. Super funds generally have up to four years to amend a tax return.

Trustees are not able to accept any contributions direct from members, either concessional or non-concessional, who have not quoted their TFN. If a superannuation fund does not have a TFN for a member being paid a pension, tax must be deducted at the top marginal rate on the taxable component, while no tax is payable on the tax-free component.